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Contrary to popular belief, private equity is not going to be the saviour for mining companies desperate for cash to fund their exploration and projects.
There are only a few private equity firms that have a real interest in the mining space and they are taking their time looking for new investments.
“The industry has developed a level of exuberance around private equity which isn’t well researched and certainly overblown,” said Michael Scherb, general partner with London-based Appian Capital Advisory LLP, which has raised $375-million (U.S.) to invest in mining assets.
“The real capital dedicated to the space is really only in a handful of dedicated mining specialist investment houses,” said Mr. Scherb on the sidelines of the Prospectors and Developers Association of Canada conference in Toronto. He is looking to deploy his fund’s capital over the next few years and recently made an investment in a Toronto-listed junior miner.
Private equity funds have about $1-trillion of so-called “dry powder” funds that have been promised to investors but not yet invested, according to the most recent global private equity report from tracking firm Preqin.
Much of that is not specifically set aside for the mining sector, which has been hit hard by the slump in commodity prices.
In addition, mining projects and companies are highly complex and do not fit the traditional private equity “buy-out” model of buying a distressed company, fixing it and then selling it over a fairly short period of time.
That shrinks the pool of serious buyers to those that have experience in the mining industry.
Toronto-based Waterton Global Resource Management is dedicated to investing in mining assets and has a team of miners who have worked for some of the biggest Canadian mining companies such as Barrick Gold Corp. and Teck Resources Ltd.
Mr. Scherb’s Appian has a team that includes former executives from mining giants Rio Tinto and Anglo American.
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